Ask the Expert: Getting early access to super isn’t easy. Here are how the rules work

Is it wise, or even possible, to draw on super to pay down a home loan?

Is it wise, or even possible, to draw on super to pay down a home loan?

Question 1

  • I’m 57 and just become unemployed. We are a sole-income family (now zero) with sizeable superannuation funds behind us. I have $600K+ while my 53yo wife has about $80K, but our problem is we still have a home loan owing $360K which we would like to clear. How can I access my super to clear the home loan before it becomes a negative situation for us?

There have been many reports recently in relation to the increase in people approaching or entering retirement with sizeable debt. So you are definitely not alone.

The ‘preservation age’, the age when you can first meet a retirement definition for super, will be 60 from July 1, 2024 for everyone.

The preservation age gradually moved from 55 to 60.

As an aside, this phase-in from 55 to 60 has been the longest I can remember.

The government’s ‘Security in Retirement’ paper back in 1992 announced it would increase the preservation age from 55 to 60, starting from July 2015 for people born after June 30, 1960.

The announcement to move preservation up by five years took 32 years to be fully phased in. We can’t say we weren’t warned.

Now back to your question.

Unfortunately, you won’t be able to ‘clear’ your loan until you at least reach age 60.

The rules about accessing any of super are very tight.

You may be able to access some of your super under severe financial hardship grounds, but you would have had to have been in receipt of a Centrelink payment, such as JobSeeker, for at least 26 weeks first.

There may also be tax implications if taking money out of super before age 60.

Or, perhaps under compassionate grounds. However, again the rules are very strict.

This could only be possible if your loan was in danger of going into foreclosure. The maximum amount released in each 12-month period must not exceed three months of repayments plus 12 months of interest.

When you do reach age 60 you can take 10 per cent of your super out each year (tax free).

To take more than this the rules are again quite strict.

You will need to meet what’s called a ‘condition of release’, which could be ceasing an employment contract or declaring to your super fund your intentions on retiring from the workforce completely.

You should discuss the options with your bank and look at applying for JobSeeker with Centrelink or finding more employment if possible.

Question 2

  • My husband and I are both in our late 40s on salaries of $170,000 (him) and $140,000 (me) and with $420,000 and $320,000 in super respectively. Our elder daughter is studying interstate and we’re currently paying around $30,000 a year for her rent and bills. My husband has just taken a redundancy, with a payout of about $180,000, due in January. He’s already got a job lined up and is confident that this will become permanent. Would we be better off paying down our mortgage, currently $370,000, or using it to buy an investment property for our daughter to live in as she studies?

Without knowing your full financial situation is difficult to make a suggestion.

Generally speaking, when looking at an investment, firstly look at it purely from a long-term investment perspective.

What I mean is, you have stated you want to buy an investment property for your daughter to live in. So what is your goal? Is it to maximise investment returns or provide a place for your daughter.

Of course, you may end up doing a bit of both, but if you don’t know what the success measure is then it’s hard to know what the right option is.

You should also consider your overall goals, not just what to do with a redundancy. This means thinking about when you want to retire, what type of retirement income you want, and do you have any other short to medium goals or expenses to cover?

An investment property has the potential to provide you high growth and, given your high incomes, it can also provide some sizeable negative gearing benefits if you take out a loan for the remainder of the purchase.

On the flip side I assume you would not be charging your daughter market rent, and there are costs involved as well as investment risks having so much money tied up in one asset.

You mentioned that your daughter is away at the moment for study. Another consideration would be what happens when she finishes her study? Will you continue to support her, or will you look to sell at this point?

Work out your goals and what you want to achieve. It may not all be financial, and this will allow you to make a better decision.

I also think it would be worthwhile considering obtaining personalised financial advice.

Question 3

  • I am a single self-funded retiree with a PSS defined benefit fortnightly super pension. Does the CSHC income test include whole pension or just the ‘untaxed’ component that is assessable income included in my tax return, which is less than $90,000. If it includes the ‘taxed’ and ‘tax free’ components I will exceed the $90,000 threshold.

The income test for the Commonwealth Seniors Health Care (CSHC) Card takes into account your ‘adjusted taxable income’ and deeming from any account-based pension.

In essence yes, the same amount you record on your tax return for your PSS defined benefit pension is assessed income for the CSHC card.

The income test for the card has now been indexed to $95,400 for a single and $152,640 for couples (as at December 2023).

Craig Sankey is a licensed financial adviser and head of Technical Services & Advice Enablement at Industry Fund Services

Disclaimer: The responses provided are general in nature, and while they are prompted by the questions asked, they have been prepared without taking into consideration all your objectives, financial situation or needs.

Before relying on any of the information, please ensure that you consider the appropriateness of the information for your objectives, financial situation or needs. To the extent that it is permitted by law, no responsibility for errors or omissions is accepted by IFS and its representatives.

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